Life insurance is a smart buy — and even crucial — if you have a family to protect. But not everyone truly needs coverage, and sometimes a policy that once fit you outlives its usefulness — and in the process, costs you unnecessary money in premiums.
If any of the following apply to you, you’re probably paying too much for your life insurance policy.
You have permanent life insurance when you only need term life.
Permanent life insurance is expensive. A 35-year-old man would pay more than 10 times more each month for a $500,000 whole life insurance policy than he would for the same amount of term life insurance, according to insurance agent group Trusted Choice. And according to many agents and financial advisors, permanent insurance policies are only suited to a few people. You may need permanent insurance if you:
- Have a high net worth. Permanent insurance can help your heirs pay taxes on an estate worth more than $5.43 million, the estate tax threshold set by the IRS.
- Have family members who will always be dependent. If any of your children or other family members are disabled and depend on you financially, permanent insurance could be a good fit.
- Own a business. Many people buy permanent life insurance so that their business partners — if they have any — can buy out their share of a business or take care of other transitional expenses.
- Have expenses or income replacement needs that will continue for the foreseeable future. If you will have mortgage or other debt that will outlast a term life insurance policy, or are still working past retirement age, you might need a permanent life insurance policy.
If none of these apply, and you’re paying for permanent life insurance, you’re might be paying for a policy you don’t need.
You have life insurance when you don’t need it at all.
Generally, it’s best to have life insurance while you have income to replace and pressing financial obligations, like your mortgage and your children’s college education. If you don’t have a job, a family or major debt, you may not need life insurance yet — or if your children are self-supporting and you’ve paid off your home, you may not need it any longer.
Life insurance rates increase for buyers as they get older, and health problems like high blood pressure can drive up premiums even for the youngest buyers. However, if you are just starting your first job and are still renting, you can probably wait to purchase coverage. And unless you need a permanent policy, you can consider dropping life insurance once you reach retirement.
If you haven’t reassessed your needs in a few years, taking another look at your finances is a good first step to finding the right amount.
You have outdated life insurance riders.
Life insurance riders can be very helpful in customizing your policy. For example, a guaranteed insurability rider means that you’ll definitely be able to buy new coverage in the future, regardless of your health, and a term conversion rider allows you to turn your term life insurance into permanent coverage at a later date.
These riders are great if you think you might need coverage in the future. But if you’ve since decided that you’ll drop coverage after your term policy expires, they’re just a waste of money.
Do your research.
A periodic meeting with your agent ensures that they’re up to date on your life circumstances, so that you don’t have too little or too much coverage. And it ensures that when and if you no longer need coverage, you don’t hold onto an unnecessary policy.
NerdWallet’s life insurance estimator tool can help you find a good rate.
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